Boeing would be hit hard by defense budget cuts

Defense Secretary Gates' budget recommendations signal the approaching end of production for Boeing's C-17 military cargo plane, built in Long Beach, Calif., and the F-22 advanced stealth jet fighter, whose wings and aft fuselage are built by Boeing in Seattle.

Boeing would be hit hard if a series of major defense budget cuts proposed today by Secretary of Defense Robert Gates are implemented.

Gates' budget recommendations signal the approaching end of production for Boeing's C-17 military cargo plane, built in Long Beach, Calif., and the F-22 advanced stealth jet fighter. Boeing builds the F-22's wings and aft fuselage in Seattle, employing more than 1,000 people.

The Army's $160 billion Future Combat Systems (FCS) program of networked vehicles, drones and communications, on which Boeing is the lead contractor, is being signficiantly restructured. The $87 billion vehicle component of FCS is canceled.

Proposed cuts in missile defense programs include a throttling back of Boeing's airborne laser program; the budget maintains funding for more research but cancels a second prototype aircraft. And the number of ground-based missile interceptors based in Alaska will not be increased as planned.

Gates also recommends terminating some major programs that Boeing has been competing for, including the combat search-and-rescue helicopter (CSAR-X), the $26 billion communications satellite constellation called TSAT, and preliminary development of a future long-range Air Force bomber.

Gates said the Pentagon remains committed to restarting the Air Force refueling tanker competition this summer, and he reiterated his opposition to the suggestion from Congress of splitting the contract between the two bitter contenders. Boeing is offering a 767 tanker in competition with a partnership between EADS and Northrop Grumman, which is offering an Airbus A330 tanker.

Gates said he wants a winner-take-all re-compete between Boeing and Northrop-EADS.

In a Washington, D.C. press conference today, Gates said the budget proposal was "crafted to reshape the priorities of America's defense establishment" and "will profoundly reform how this department does business."

He expressed a determination to "stop programs that significantly exceed their budget or which spend limited tax dollars to buy more capability than the nation needs."

"My decisions act on this principle by terminating a number of programs where the requirements were truly in the 'exquisite' category," Gates said.

Army modernization reassessed

On the Army's Future Combat Systems program, Gates said the government will maintain and even accelerate the initial stages of the program.

But he canceled the development of new modernized Army vehicles, a major part of the program, citing "signficant unanswered questions."

"Despite some adjustments, the FCS vehicles — where lower weight, higher fuel efficiency, and greater informational awareness are expected to compensate for less armor — do not adequately reflect the lessons of counterinsurgency and close quarters combat in Iraq and Afghanistan," Gates said.

The vehicle component of the program will be entirely re-evaluated and afterward subjected to a new competitive bidding process.

Missile defense priorities

Following North Korea' rocket launch over the weekend, Gates faced urgent questions about protecting the nation against future missile threats.

He said U.S. strategy will shift "to focus on the rogue state and theater missile threat."

Boeing has large pieces of the sprawling missile defense budget. It manages the ground-based midcourse defense system, which has a system of interceptor missiles based in Fort Greeley, Alaska, and Vandenberg Air Force base in California.

While Gates scaled back the number of interceptors planned for Alaska, this missile program is still alive.

"We will continue to robustly fund continued research and development to improve the capability we already have to defend against long-range rogue missile threats — a threat North Korea's missile launch this past weekend reminds us is real.

Boeing has also been developing a prototype airborne laser (ABL) mounted on the nose of a 747, designed to shoot down incoming missiles in the early boost phase.

But the program is way over budget and lagging in development. California Congresswoman Rep. Ellen Tauscher, the Obama administration's pick for State Department undersecretary for arms control, last month said the program is "eight years behind schedule and $4 billion over cost." She called ABL the "definition of insanity."

Gates canceled plans for a second airborne laser prototype.

"The ABL program has significant affordability and technology problems, and the program's proposed operational role is highly questionable," Gates said.

Boeing miltary airplanes

Among fighter jets, Lockheed Martin's F-35 Joint Strike Fighter (JSF) is the proposed budget's big winner against the more advanced F-22. Gates said the U.S will buy 2,443 JSF jets.

Boeing has no part of the JSF program.

Lockheed is also the lead contractor on the F-22, but Boeing is a major partner on the program.

Gates resisted Congressional demands to buy 60 more of the F-22 fighters and said the current order for 187 jets is sufficient.

"It was not a close call," Gates said. "There is no military requirement for numbers beyond 187."

The last F-22 will roll out in 2011.

As a small consolation for Boeing, Gates included funds to buy 31 of its last-generation, F/A-18s for the Navy, which are built in St. Louis, Mo.

Gates also said the military will fill its needs for C-17 heavy-lift air transport this fiscal year, ending with 205 of the airplanes. He resisted Congressional pressure to add more C-17s to preserve jobs throughout the country. "We have enough C-17s," he said.

Gates also shelved plans to develop a new long-range bomber to replace the B-2, "until we have a better understanding of the need, the requirement and the technology."